“All the world’s a stage, and all the men and women merely players. They have their exits and entrances.”
Act 1 – Brexit: What do we know?
In the current, ever-changing political environment, it's difficult to know exactly what to think about Brexit.
But there are some things we do know, at least in terms of the options available. As things stand, there are four likely Brexit scenarios that could play out:
1) No deal. The UK leaves the European Union (EU) on 29 March without a withdrawal agreement and no transitional arrangements (also known as the implementation period).
2) The UK leaves the EU on 29 March with a withdrawal agreement that includes an implementation period which lasts until 31 December 2020, or longer if agreed, and adopts a framework for a future relationship with the EU which comes into effect at the end of the implementation period.
3) The UK leaves the EU on 29 March with a withdrawal agreement that includes an implementation period which lasts until 31 December 2020, or longer if agreed, but in that time does not agree a framework for a future relationship with the EU.
4) The UK remains a member of the EU.
It's also possible for the 29 March deadline to be extended if the 27-strong group of EU nations agree to this as a way of avoiding a no deal Brexit.
Clearly there will be ramifications for advice, but there will be a particular impact for those of you who hold passporting permissions to advise and service clients in Europe.
While at this stage the most likely Brexit outcome is anyone's guess, we can be safe in the knowledge that we do at least have some clarity about what the various regulators are expecting from firms.
Act 2 – Regulatory expectations
For firms holding MiFID passports, the European Securities and Markets Authority reminded firms before Christmas that: “In order to avoid any potential disruption arising from client confusion, firms that will be impacted by Brexit should ensure that they provide clear information to clients whose contracts and services may be affected."
The message for firms holding other passports is a similar one from the FCA. It has set out clear expectations that firms should be communicating with their clients in a timely and effective manner if they are likely to be affected by Brexit.
Firms will want to stay on the right side of the regulator, but many will be concerned about the level of detail they can or should give to their clients. To help you, we believe any firm holding passports should consider the following before sending any information to clients.
Think about who you provide services to via the use of your passporting permissions. Then ask yourself:
- Are these clients profitable to the business?
- Is it essential to retain a relationship with these clients?
To be, or not to be
From a strategic point of view the question is simply this: does your firm want to continue to hold its passporting permissions or not? If not, these permissions can be cancelled using the FCA’s Connect system.
Once your strategy is decided, then your firm will need a process to follow.
If you decide to cancel your passporting permissions, then you should make plans to disengage with clients in an orderly manner, including considering the content of existing client agreements.
If you wish to retain a relationship with your clients, consider the implications of the four possible Brexit outcomes described above.
If you cannot decide, and want to postpone this decision, you will still need to make plan now to make a final decision at a time when the picture is clearer, again in line with the possible Brexit outcomes as outlined above.
With so much conjecture around, it can be difficult to plan effectively for the European-based clients you advise and service.
However, the FCA’s expectations are clear when it comes to client communication. This means you need to assess the landscape, plan accordingly and execute the relevant instructions to clients at the earliest opportunity.